2019 (5) TMI 939 - AT - Income Tax

Income accrued in India - consideration received by assessee from the payer i.e. Sandvik Asia Pvt. Ltd. amounts to royalty or fees for included services or fees for technical services under the realm of section 9(1)(vi) - provisions of DTAA between India and Sweden - HELD THAT - The assessee, non-resident has received consideration against provision of software services from Sandvik Asia Pvt. Ltd. Once the Tribunal has held the same as not royalty either under the Income Tax Act or under DTAA provisions in the hands of payer i.e. Sandvik Asia Pvt. Ltd., consequently the said receipt by the assessee cannot be termed as royalty under both the provisions of the Act i.e. section 9(1)(vi) / 9(1)(vii) or under Article 12 of the DTAA between India and Sweden. Accordingly, we hold that consideration received by assessee on providing software services is not taxable in its hands. The grounds of appeal No.2 and 3 raised by assessee on merits are thus, allowed Levying education cess and levying interest under section 234B are consequential in nature

Summary

Issues:
Assessment years 2010-11, 2011-12, and 2013-14 - Reopening of assessment proceedings under section 147 - Taxability of receipts for IT support services and GSS maintenance charges - Levying of education cess and interest under section 234B.

Issue 1: Reopening of Assessment Proceedings under Section 147
The appellant contested the reopening of assessment proceedings under Section 147 of the Income-tax Act, 1961. The Dispute Resolution Panel (DRP) confirmed the action of the Assessing Officer (AO) in reopening the assessment. The appellant argued that the reassessment initiated by the AO was invalid and void. However, the appellant did not press this ground during the proceedings. The Tribunal noted that the issue raised under this ground was not pursued and hence dismissed it.

Issue 2: Taxability of Receipts for IT Support Services
The appellant challenged the taxability of receipts for granting limited user access to CAD/CAM utility as 'Royalty' under the Double Taxation Avoidance Agreement (DTAA) between India and Sweden. The AO considered the receipts as fees for technical services and taxable under the Act and DTAA. The DRP upheld the AO's decision. The Tribunal, after considering similar cases and legal precedents, held that the consideration received by the appellant for providing software services was not taxable as 'Royalty' under both the Act and the DTAA. Consequently, the grounds of appeal related to this issue were allowed.

Issue 3: Levying of Education Cess and Interest under Section 234B
The AO levied education cess and interest under section 234B of the Income Tax Act, 1961, while computing the tax and interest liability on the income of the appellant. The Tribunal deemed these issues as consequential and dismissed the grounds of appeal related to the levying of education cess and interest under section 234B.

In summary, the Tribunal partially allowed the appeals of the appellant concerning the taxability of receipts for IT support services, while dismissing the grounds related to the reopening of assessment proceedings, levying of education cess, and interest under section 234B. The Tribunal's decision was based on the interpretation of legal provisions, DTAA agreements, and relevant judicial precedents to determine the taxability of the appellant's receipts for providing software services.